Why Are Tech Unicorns Delaying Their IPOs?

2017 was not an excellent year for tech company IPOs. Snap, for example, had a quick run-up from its IPO price of $17 a share to almost $30, but its share price plummeted almost as fast as it rose. The company’s stock price has yet to rebound to its IPO value.

A number of tech companies are expected to go public this year, but they are holding off, perhaps due to fears that, as with Snap, their extremely high valuation won’t be reflected in their stock prices.

This delay in IPOs is making early investors nervous, and in some cases, eager to get out. But for all the investors who want to get out, there are others who want to get in. Take, for example, private equity firm General Atlantic’s recent investment of about $200 million in website company Squarespace.

General Atlantic isn’t the only one eager to invest in companies with high valuations but which, for reasons of their own, would prefer not to go public.

Uber, for example, recently offered its stockholders the option to sell to investors including SoftBank Group—at a 30 percent discount to the most recent valuation. According to Bloomberg, at least two of Uber’s backers have agreed to the deal.

SoftBank is well known in Silicon Valley as a source of cash for startups. Its $93 billion Vision Fund has helped companies like Slack and WeWork avoid IPOs.

“There’s this other optionality, the Masa-IPO,” said technology investor Jason Calacanis, referring to SoftBank CEO Masayoshi Son. “In Silicon Valley now, everybody’s talking about, ‘Why IPO when you can just Masa-PO?’ Masa’s going to save all these companies and put the money in and we’re good. So I feel great about it.”

Aside from Softbank’s Vision Fund, how are Squarespace and other unicorns avoiding pressure from VCs worried about being unable to liquidate cash invested in them? Here are a few other tools tech companies are using to avoid IPOs.

Initial coin offerings

ICOs use cryptocurrency based on the Ethereum blockchain to raise funds. By doing so, they attract investors at a variety of levels who are looking to win big. Considering that there is a growing group of people saying that cryptocurrency—and Bitcoin in particular—are in a bubble, this may not be the safest or most risk-free way to pull in cash.

Special purpose acquisition companies

SPACs such as Social Capital Hedosophia are designed to take money investors make on Wall Street and from buying stakes in startups in hopes that they find a company that has a winning combination of disruptiveness and agility.

Direct listings

Rather than making a debut on the stock market by going through the formal process of an initial public offering, some companies choose to get their shares listed directly on stock exchanges. This provides liquidity for investors, and the company doesn’t have to navigate a potential roller coaster ride in share value.

Mergers and acquisitions

Getting acquired is far and away the most frequent way for VCs to get a return on their private investments. Ted Smith, co-founder and president of Union Square advisors, told MarketWatch that about 80 percent of young companies end up getting acquired, while 20 percent go public.

Ultimately, ongoing private funding—whatever the source—is allowing companies to avoid IPOs and possibly maintain their valuation (or their investors’ delusions about their valuation). With that in mind, it’s not surprising that many unicorns are not eager to go public. If they did, it could well be an unpleasant wake-up call for both companies and investors.